Roemer Oil Co. v. Aztec Gas & Oil Corp.

• Decision Date: 01 December 1994
• Docket Number: No. 93-266,93-266
• Citation: 886 P.2d 259
• Parties: ROEMER OIL COMPANY, a Colorado corporation, Appellant (Plaintiff), v. AZTEC GAS & OIL CORPORATION a Nevada corporation, Appellee (Defendant).
• Court: Wyoming Supreme Court

Page 259

886 P.2d 259

ROEMER OIL COMPANY, a Colorado corporation, Appellant (Plaintiff), v. AZTEC GAS & OIL CORPORATION a Nevada corporation, Appellee (Defendant).

No. 93-266.

Supreme Court of Wyoming.

Dec. 1, 1994.

Joseph E. Hallock of Stevens, Edwards & Hallock, P.C., Gillette, Michael Rosenthal of Hathaway, Speight, Kunz & Trautwein, Cheyenne, as local counsel; and Timothy R. Beyer and Stephen D. Gurr of Baker & Hostetler, Denver, CO, for appellant.

Jon B. Huss of Brown & Drew, Casper, for appellee.

Before GOLDEN, C.J., and THOMAS, MACY, and TAYLOR, JJ., and McEWAN, District Judge Ret.

TAYLOR, Justice.

The primary question in this appeal is whether the term "reworking" in an oil and gas operating agreement is ambiguous in meaning. The district court determined that the term was not ambiguous and that, under the terms of the agreement, appellee was entitled to summary judgment.

We reverse.

I. ISSUES

Appellant, Roemer Oil Company (Roemer), raises these issues:

1. Whether the trial court erroneously determined as a matter of law that the terms "rework" and "reworking" contained in Section 11 and Section 12 of the Model Form Operating Agreement between the parties are not ambiguous.

2. Whether the definition of "reworking" adopted by the lower court improperly nullifies the provisions in Section 11(c) of the Operating Agreement and imposes impractical obligations upon the Operator contrary to the clear intent of the parties.

3. Whether it was error for the trial court to enter summary judgment in the face of disputed issues of material fact surrounding the parties' understanding of the ambiguous terms "rework" and "reworking" contained in Sections 11 and 12 of the Operating Agreement.

4. Whether it was error for the trial court to enter summary judgment given the genuine triable issues of material fact surrounding the determination of whether each of the numerous projects performed by Roemer on the Subject Wells constituted "rework" or "reworking" under Section 11 or 12 of the Operating Agreement.

Appellee, Aztec Gas & Oil Corporation (Aztec), summarizes the issues as follows:

A. Did the Trial Court Err in Granting Summary Judgment for Defendant Aztec?

1. Did Roemer's workovers and repairs of oil and gas wells constitute "reworking" a well for purposes of a joint operating agreement's consent provisions?

2. Is summary judgment for Aztec sustainable on other grounds raised before the trial court?

a. Did Roemer violate Section 11(c) of the joint operating agreement by failing to provide notice and receive prior authorization of projects reasonably expected to exceed $5,000.00 in cost?

b. Did Aztec have an interest in any of the Subject Wells other than Apache No. 7?

c. Did Roemer breach its duty to act as a prudent operator?

d. Are Roemer's unjust enrichment and attorneys fees claims flawed?

II. FACTS

On August 18, 1967, Apache Corporation entered into an Operating Agreement with Woods Petroleum Corporation. Roemer was successor to Apache and was the operator under that agreement from September 1, 1990 through November 1, 1992. Aztec succeeded to the interest of Woods Petroleum Corporation by sale executed on March 9, 1990. At that time, the wells in controversy were shut in. Roemer determined that four of the wells were capable of being produced economically and returned three of the wells to production in 1991. Roemer did not consider the work it was doing to be "reworking" and, pursuant to Section 11(c) of the Operating Agreement, submitted joint interest billings to Aztec for its share of the expenditures incurred in accomplishing that work. Initially, Aztec paid its share of the costs, but then discontinued paying, asserting, in the alternative, that it had no interest in some of the wells and that Roemer had failed to seek Aztec's approval, as required by the Operating Agreement, prior to accomplishing the work for which Aztec was billed. Roemer filed this action to recover from Aztec $41,508.10 in unpaid billings.

The controversy centers on Sections 11 and 12 of the Operating Agreement:

11. LIMITATION ON EXPENDITURES

Without the consent of all parties: (a) No well shall be drilled on the Unit Area except any well expressly provided for in this agreement and except any well drilled pursuant to the provisions of Section 12 of this agreement, it being understood that the consent to the drilling of a well shall include consent to all necessary expenditures in the drilling, testing, completing, and equipping of the well, including necessary tankage; (b) No well shall be reworked, plugged back or deepened except a well reworked, plugged back or deepened pursuant to the provisions of Section 12 of this agreement, it being understood that the consent to the reworking, plugging back or deepening of a well shall include consent to all necessary expenditures in conducting such operations and completing and equipping of said well to produce, including necessary tankage; (c) Operator shall not undertake any single project reasonably estimated to require an expenditure in excess of Five Thousand and No/100 Dollars ($5,000.00 ) except in connection with a well the drilling, reworking, deepening, or plugging back of which has been previously authorized by or pursuant to this agreement; provided, however, that in case of explosion, fire, flood, or other sudden emergency, whether of the same or different nature, Operator may take such steps and incur such expenses as in its opinion are required to deal with the emergency and to safeguard life and property, but Operator shall, as promptly as possible, report the emergency to the other parties. Operator shall, upon request, furnish copies of its "Authority for Expenditures" for any single project costing in excess of $5,000.00.

12. OPERATIONS BY LESS THAN ALL PARTIES

If all the parties cannot mutually agree upon the drilling of any well on the Unit Area, or upon the reworking, deepening or plugging back of a dry hole drilled at the joint expense of all parties or a well jointly owned by all the parties and not then producing in paying quantities on the Unit Area, any party or parties wishing to drill, rework, deepen or plug back such a well may give written notice of the proposed operation, specifying the work to be performed, the location, proposed depth, objective formation and the estimated cost of the operation. The parties receiving such a notice shall have thirty (30) days (except as to reworking, plugging back or drilling deeper, where a drilling rig is on location, the period shall be limited to forty-eight (48) hours exclusive of Saturday or Sunday) after receipt of the notice within which to notify the parties wishing to do the work whether they elect to participate in the cost of the proposed operation. Failure of a party receiving such a notice to so reply to it within the period above fixed shall constitute an election by that party not to participate in the cost of the proposed operation.

Section 12 goes on to provide that only consenting parties receive the benefit of any production which might result from a given operation. Aztec received its share of production, but production amounted to less than one-third of the costs of Roemer's work.

Roemer contended, and presented affidavits and other evidence, that the jobs it performed were merely "projects" to repair production equipment which it reasonably estimated to cost less than $5,000.00 per project and, therefore, it did not need advance approval from Aztec in order that Aztec be bound to pay its share of the expenses incurred. Moreover, Roemer maintains that Aztec knew of Roemer's repair projects on the subject wells and did not complain until it became aware of the results, i.e., that production was still not economic. Aztec contended, in part, that the "projects" done by Roemer were "reworking" and, hence, Roemer was obliged to seek Aztec's advance approval in order that it be bound to pay a share of the expenses.

Aztec filed a motion for summary judgment. Finding there was no genuine issue of material fact, the district court granted that motion. The district court reasoned that Section 11(b) of the Operating Agreement provided, in basic part:

"Without the consent of all parties: (b) no well shall be reworked ... except a well reworked ... pursuant to the provisions of Section 12 of this agreement ..." Section 12 in pertinent part provides as follows: "If all parties cannot mutually agree ... upon the reworking ... of ... a well jointly owned by all the parties and not then producing in paying quantities ... any party or parties wishing to ... rework ... such a well may give the other parties written notice of the proposed operation, specifying the work to be performed, the location, proposed depth, objective formation and the estimated cost of the operation." * * * The expressed provision of Section 11(b) prohibits such a reworking of a well. "Reworking" appears to be a term of art in the oil and gas industry and cases involving oil and gas. The court was referred to and consulted the Williams and Myers [sic] treatise which indicates that reworking is done to restore production that has ceased. The record clearly indicates that all six wells involved had not been producing for a substantial period of time * * *.

* * * * * *

Basing the decision as I have on Section 11(b) and Section 12 of the Operating Agreement and with plaintiff's failure to give notice thereunder, plaintiff cannot now recover from defendant. It is unnecessary for the court to rule on any of the parties' other contentions.

III. DISCUSSION

In evaluating the propriety of a summary judgment, we determine whether there are no genuine issues of material fact and whether, as a consequence, the prevailing party is entitled to judgment as a matter of law. Equality Bank of Evansville, Wyo. v. Suomi, 836 P.2d 325, 328 (Wyo.1992); W.R.C.P. 56(c). Summary judgment is appropriate when the terms of the parties'...